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The Back Page
by Bryan Chaffin

The Real Threat To Record Labels From The Apple Music Stores: Independence
May 1st, 2003

One of the biggest questions I have had about Apple's new Apple Music Store (AMS) is whether or not independent labels and artists could land distribution deals on the service. This, perhaps more than any other aspect of the AMS, could be the single biggest factor affecting the music industry of the next 20 years.

A grandiose statement, you say? Hardly, but the good news is that at least one half of the independent equation is indeed coming to the AMS. In a very interesting interview given to TIME Magazine, Steve Jobs specifically says that Apple is working with independent labels to bring them on board. Better yet, those independents are (rightfully) clamoring to get in. From TIME:

TIME: What about independent labels? Will they follow suit?

Jobs: Yes. They've already been calling us like crazy. We've had to put most of them off until after launch just because the big five have most of the music, and we only had so many hours in the day. But now we're really going to have time to focus on a lot of the independents and that will be really great.

There's a lot more in the full interview, so definitely check it out.

Water Wars

Why is this such a big deal? It's all about the Big D: Distribution.

Distribution is the key aspect to making money in the music industry. Combined with its big-money cousin, Marketing, Distribution is more important to the success of most acts than that little ol' thing called "talent." If you aren't on store shelves (and you aren't being heard by people on the radio), no one can, or will, buy your CD.

That's just simple economics, but it's the linchpin that gives the Big Five record labels, the same Big Five that comprise the RIAA, their power. They control distribution, they have the resources to make sure that distribution is almost all-encompassing, and they have the resources and connections to offer marketing. Add in enough of a cash stash to finance (but not actually pay for) recording, and that's the bulk of what a record label does for any band. Just like the great water empires of the past, the labels' power resides in control of distribution.

Unearned Profits

That is an extremely simplistic breakdown of the music industry, but it's an accurate one. This control is why the record labels are able to charge such astronomical prices for CDs as we have today. When you own all the marbles, you call the shots, especially when power is consolidated into as few hands as it is today. The labels control distribution, so they can dictate terms to the artists. The artists have to sign with the labels if they want to "make it big," which means that the labels control the flow of product. That allows them to also control pricing, even while paying the artists very little, and it all feeds back on itself in a vicious circle of unearned profits.

To add insult to injury, the labels effectively never risk very much of their own money (the artists have to pay back all advanced monies issued for studio time, and the like), and often control what and how an act records. All this because they control distribution and can provide marketing.

Piracy is spelled "R-e-d-h-e-r-r-i-n-g"

In fact, as I have pointed out in many a TMO Spin and several editorials during the past couple of years, the battle against "piracy" from the recording industry is actually a battle to stop, and eventually control, technology. Like the Luddites before them who smashed the mechanical looms that made their handweaving skills obsolete, the labels have been fighting a rear guard action to stop technology, while working to put legislation in place that would cement their control over distribution for many years to come. All the crying, whining, and threats about piracy were not about what was right (and stealing music is not right), but about wrongly trying to maintain their own obsolete business model at our expense.

The thing is that they are right to be so fearful. Just like the doomed weaving Luddites of yore, the labels' days are numbered, unless someone like Steve Jobs takes over. The Apple Music Store, however, could well be the beginning of the end for these tiresome dinosaurs...

The independent equation

...but not unless Apple can and will work with independent labels and artists.

Independent record labels tend to be much better business partners for bands, except that they can't offer Distribution (back to the capital D). Many independent labels care about the bands they work with, and many more are passionate about the music itself. They "get it," because they have to in order to eke out a living, and because their businesses are usually born of love-of-music, and not out of legacy.

The Internet could change all that. If the AMS is successful, independent labels and acts could suddenly have access to the single biggest thing they need: Distribution on par with what the Big Five have. Right next to the Boy Band Du Jour, you could have the best garage band, or electronica act you normally would never have heard of, because for the first time in history they could compete on equal footing in terms of distribution. This could, possibly, erode the power of the Big Five so much that bands, especially big name acts with their own marketing engines, could eschew a "record contract" altogether.

Trimming the fat

Right now, Apple is supposedly paying something akin to 65 cents per song for licensing rights (don't hold me to it, but it's most likely close), with some sort of deal worked out on full albums. Most of that money goes to the labels and/or the copyright owner, and some goes to the songwriter. What little is left goes to the rest of the band, the manager, and anyone else with their hand in the pie.

Now, what if someone like Prince, for instance, could make a deal directly with Apple where Apple sold his songs for 50 cents, and Prince got 30-35 cents for each one. That's a lot more than he's making on each song now, I assure you, and he'd perhaps sell more songs because they would be cheaper than the songs the labels controlled. It's like trimming the fat, but the fat is in the form of the useless middle-man known as the record label.

In other words, in this scenario, Apple essentially becomes the record label, but without all the BS.

Once one act does so, you'd have a nice domino effect ricocheting throughout the music industry. Throw in sales tracking figures so that the lemmings can know what everyone else is buying, and the entire industry is reborn. Just as Steve Jobs said, but not quite the way he said it.

Add it up

I am not saying that all the labels are doomed. Indeed, not only is this a very big market with lots of room for competitors (for instance, you can still buy new vinyl today, and CDs will still be popular for many years to come), the Big Five will be able to coast for decades on all the copyrights they own from the past 60 years or so, thanks to the absurd copyright laws on the books today. Heck, those old catalogs are going to increase in value as it becomes profitable to release the hundreds of thousands of out-of-print songs through the magic of Internet services like the AMS.

At the very least, however, the AMS -- and all the copycat services that are likely to eventually sprout up -- could very well make any surviving labels actually work to earn the profits they make. Perhaps for the first time. It's a wonderful idea, but it actually has to start with Apple successfully offering independent labels (and eventually independent acts) on the AMS. According to Steve Jobs, that day is near.

I can't wait.


began using Apple computers in 1983 in a high school BASIC programming class. He started using Macs in 1990 when the Kinko's guy taught him how to use Aldus PageMaker, finally buying a Power Computing Power 100 in 1995. Today, Bryan is the Editor of The Mac Observer, and has contributed to the print versions of MacAddict and MacFormat (UK).

You can send your comments directly to him, or you can also post your comments below.

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